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Caesars Gains on New Project Venture

Stocks in this article: CZR MPEL LVS MGM

In addition, Caesars said it will take a stake of between 57% and 77% in Caesars Growth, depending on how many other shareholders buy into the new company, selling the remainder to the vehicle formed by PE sponsors TPG and Apollo.

Caesars' debt burden, which is mainly carried by subsidiaries, is weighing on the company's credit ratings. On April 5, Moody's downgraded Caesars ratings to Caa2 from Caa1. It also chopped the ratings of CEOC's first-lien debt to B3 from B2, its second-lien debt to Caa3 from Caa2, and its unsecured guaranteed notes and unsecured notes both to Ca from Caa3. The rating outlook is negative.

"The downgrade of Caesars' ratings considers that its same store Ebitda growth in 2012-2013 has failed to materialize to any significant degree, and so Caesars' credit metrics have deteriorated and its free cash flow deficit will be higher than Moody's previous expectations," Moody's analyst Peggy Holloway wrote in a note. She added that Caesars has experienced a continuation of negative gaming revenue trends so far in 2013 across most of the company's major markets, as a longer-lasting rebound in gaming demand has been derailed again, this time by higher taxes that are reducing consumers' discretionary income.

Nevertheless, the cash injection from the newly formed entity could help alleviate the projected cash burn rate -- a rate that Moody's estimates at $300 million of its cash on hand plus capital expenditures in 2013, assuming flat Ebitda, slightly higher cash interest and required debt amortization of about $170 million.

Caesars went public in February 2012, raising $16.3 million at $9 per share.

Written by Taina Rosa in New York

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